Mexican Auto Industry Revs Up For Big Year

Industry officials say they are on course to boost production to as many as 4 million autos annually. That's good news for Mexico but has many in the U.S. worried, especially as Audi gets ready to build a new luxury line plant in Mexico and not in the U.S.

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We're going back in time a few decades to Mexico and the debate over the North American Free Trade Agreement. Back then, supporters promised that the pact would bring good manufacturing jobs to Mexico - all of Mexico. For years, only its northern border states had benefited from special tariff breaks given to international manufacturing plants.

Under NAFTA, foreign factories were allowed to set up anywhere and they have. Among the industries that benefited most from the trade agreement was Mexico's then young automotive industry. It's grown immensely in the 20 years since and as NPR's Carrie Kahn reports, Mexico is now the fourth-largest exporter of cars in the world.

CARRIE KAHN, BYLINE: The Volkswagen plant in the central Mexican state of Puebla is immense. It stretches nearly two miles long and employs more than 18,000 people working three shifts, six days a week, says spokesman Israel Victoria(ph).

ISRAEL VICTORIA: So 24 hours, these lines is moving and producing cars. We produce here an average of 2,200 cars each day.

KAHN: In one of the plant's four cavernous production facilities, workers slide in seats, slip on dashboards and put the final touches on dozens of white, tan and blue Jettas that slowly crawl down this final assembly line. So the last station is the tires and then they roll right out the door.

VICTORIA: That's right. That's right. The cars are ready to roll out of the production line.

KAHN: When Volkswagen built this plant in the 1960s, all cars made here had to stay in Mexico. Back then, only the classic Beetle was built in the plant, says Thomas Karig, vice president of VW's Corporate Relations.

THOMAS KARIG: One car was the same as the other. The color might change but there were no more than four colors. Yeah? Today, complexity is much bigger. And this is, of course, one of the big challenges of being in this global car business here from Mexico.

KAHN: Cars rolling off the line now must satisfy worldwide tastes and comply with regulations in the U.S., Europe, Australia and South America. Nearly every major automaker is making cars in Mexico now. Production is up to nearly three million a year, says Eduardo Javier Solis, president of Mexico's automotive industry.

EDUARDO JAVIER SOLIS: So one of out every 10 vehicles that is sold in the U.S. market is Mexican. Production will continue to grow.

KAHN: He predicts production will top four million cars within the next five years. And he might be right. Carmakers are opening new plants and expanding old ones at top speed. Nissan just inaugurated a new $2 billion plant this year in Aguascalientes. And Ford, GM and Chrysler have all announced plans to spend $1 million in plant upgrades. That has led to a boom in Mexico's heartland, where most of the car and auto part plants are located.

The new jobs have helped fuel Mexico's growing middle-class. But critics say that job gain comes at the expense of the U.S. auto industry, which has contracted as Mexico's expands. Jobs south of the border pay $4 an hour compared to the highest unionized U.S. salary, four times that much.

Economist Luis de la Calle, who helped negotiate the free trade agreement 20 years ago, says without Mexico's auto industry and growing supply chain of auto parts factories, the U.S. auto industry would have shrunk even more. He says Mexico and its lower wages gives the U.S. its competitive advantage over Asian imports.

LUIS DE LA CALLE: A car manufactured in Ohio is maybe 30 percent Mexican. If you tried to produce those parts in the U.S., that car would lose to Korea and to Japan in a minute.

KAHN: And it's not just cheaper wages that are boosting Mexican auto production. Alan Berube, of the Brookings Institution, points to proximity to the U.S. and a highly integrated auto part supply chain that has developed between the two countries. He says a car may cross the border as many as eight times, adding parts along the way before the final product rolls off the production line.

ALAN BERUBE: Firms are able to do this in North America in a way that they can't really do from China or Europe.

KAHN: That efficiency is paying off for Mexico's auto industry. And so is NAFTA, even 20 years later. Foreign factories keep taking advantage of the trade pact's tariff and duty free perks. Just this last summer, the German automaker Audi broke ground on a new $1.5 billion plant in the state of Puebla, where it will build SUV's - the first luxury line ever manufactured in Mexico.

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KAHN: Audi and its parent company Volkswagen picked the tiny town of San Jose Chiapa - which is better known for its cowboys than autoworkers - to build the immense plant that will stretch 45 football fields long.

IVET DURAN: (Foreign language spoken)

KAHN: Ivet Duran, who runs a small convenience store off the church square, says change is definitely coming.

DURAN: (Foreign language spoken)

KAHN: Before you couldn't even find us on the map, she says, soon you will.

Restaurants have begun popping up nearby and her business is up 70 percent. But despite the boost to the local economy, Duran says people in town are anxious about the future. As I get ready to walk out, she wonders out loud whether the Germans will like it here.

Carrie Kahn, NPR News, Puebla.

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